Wednesday, July 20, 2011

UK Retail Sales Data Release - 21 July 2011

Today´s Retail Sales number from UK will be widely watched as this is a high impact yet very tradable report. Here is the forecast for this release:

4:30am (NY Time) Forecast 0.5% Previous -1.4%

The Trade Plan

The monthly retail sales report is a direct measurement of consumer activities at the retail level. A higher release is generally good for the economy, and better for it´s currency; a lower release is considered negative for the economy and not good for it´s currency.

Our tradable deviation or surprise factor for UK Retail Sales is 0.5% to BUY or SELL. If our deviation is hit, we can expect the market to move at least 50 pips within the hour, with a historical accuracy of 72%. We´ll be looking to BUY GBP/USD if we get a positive release of at least 1.0%, and SELL GBP/USD if we get -0.1% or worse.

We´ll be looking for an after-news retracement trade for this release. 

The Market
With UK’s recovery failing to gain momentum and inflation at 4.2% y/y squeezing out any disposable income, consumer have to also deal with tax hikes and budget cuts, resulting in recent sharp drop of consumer confidence and household spending.

Therefore, regardless of the release figure, I’d still be bearish for the Sterling as there are no expectations for any strong growth in consumer spending pattern, especially when you also account for the recent Jobless Claims figure showing slightly higher levels of unemployment in UK.

Additional Thoughts
GBP is bearish due to its fundamental outlook. If we get a strong release, I’d be looking for areas to SELL into the rally.

Pre-News Consideration
There is no pre-news trading for this release as it goes against the long-term trend of the currency…